Lock-up is WIP days plus debtor days — the number of days between doing the work and holding the cash. Calculate WIP days as WIP divided by annual fees times 365, and debtor days as trade debtors divided by VAT-inclusive fees times 365. On £1.2m of fees, one day of lock-up is worth about £3,950, so taking thirty days out releases roughly £118,000 of cash without winning a single new client. The days come out of the process, not out of people: bill as a workflow step rather than a month-end event, put recurring work on monthly direct debit, give review a service level, automate chasing with written escalation triggers, and stage-bill anything longer than a month.
What lock-up actually is
Lock-up is the number of days between doing the work and having the cash. It is two numbers added together: work in progress days, which is how long finished-and-unfinished work sits before it is billed, and debtor days, which is how long a bill sits before it is paid.
Most firm owners can tell you their debtor days within a week or two. Far fewer can tell you their WIP days, and WIP is usually the bigger half. That asymmetry matters, because chasing debtors is somebody else’s job in most practices while WIP is entirely within the owner’s control and nobody owns it.
The two calculations, so we are talking about the same thing:
- WIP days = (WIP balance ÷ annual fees) × 365
- Debtor days = (trade debtors ÷ annual fees including VAT) × 365
Use fees including VAT for debtor days, because your debtors ledger includes VAT and your fee income does not. Mixing the two is the single most common error when a firm calculates this for the first time, and it flatters the answer.
A worked example, and what a day is worth
Take a firm with £1.2m of annual fees. WIP sits at £180,000 and trade debtors at £240,000. Illustrative figures, not client data.
| Calculation | Days | |
|---|---|---|
| WIP days | £180,000 ÷ £1,200,000 × 365 | 55 |
| Debtor days | £240,000 ÷ £1,440,000 × 365 | 61 |
| Lock-up | 116 |
That firm has £420,000 of its own money sitting in other people’s systems and its own unbilled files. Gross fees of £1.44m divided by 365 means one day of lock-up is worth about £3,950. Take thirty days out and you release roughly £118,000 of cash, permanently, without winning a single new client.
Put that next to the alternatives. To generate £118,000 of cash from growth, at a 25% net margin, you would need to win around £470,000 of new fees. To borrow it, you would pay interest on it every year. Reducing lock-up is the cheapest capital available to a practice, and it is the one nobody schedules.
Where the days actually hide
Lock-up is not one problem. It is five, and they need different fixes.
| Stage | What is happening | The fix |
|---|---|---|
| Records in, job not started | The file waits in a queue nobody manages | Allocate on arrival, not on Monday |
| Job done, waiting for review | One or two reviewers are the constraint | A review service level, measured weekly |
| Reviewed, not billed | Billing is a month-end task | Billing becomes a workflow step |
| Billed, not chased | Chasing starts when someone remembers | Automated ladder from day one |
| Annual billing on recurring work | The client pays a year in arrears | Monthly direct debit |
The third row is where most of the surprise sits. In a lot of firms billing happens because it is the end of the month, which means a job finished on the 2nd waits twenty-six days before anyone raises an invoice, before the client has even started their own payment cycle. Nothing about that is a decision anyone made. It is a habit inherited from when the firm was small enough to do everything on one afternoon.
The five changes that move the number
1. Make billing a step in the job, not an event in the month. The job is not finished when the return is filed. It is finished when the invoice is raised. Put billing in the workflow immediately after review sign-off, make it the same person’s responsibility, and measure the gap between completion date and invoice date. In most firms this single change is worth ten to twenty days on its own.
2. Put the recurring book on monthly direct debit. For compliance work billed annually, direct debit does not just reduce debtor days, it removes them for that portion of the fee. It also removes the annual invoice as a moment where the client re-evaluates the relationship, which is a second benefit nobody counts. Migrating an existing book takes a season and needs a proper communication plan, so treat it as a project rather than an announcement.
3. Give review a service level and put it on the weekly dashboard. The review queue is the most expensive invisible thing in an accountancy firm. Agree a target — three working days is a common one — count how many jobs are past it every Monday, and let the oldest item in the queue be visible to everyone. Reviewers do not slow work down because they are careless; they do it because nothing tells them which file is costing the firm the most.
4. Automate the chase, and write down the escalation. Chasing should start the day after the due date and run without anyone deciding to do it. What needs a human decision is only the escalation: at what point does a partner ring, and at what point does work stop. Write those two triggers down once. Firms that have never written them down do not escalate at all, because nobody wants to be the person who decided to.
5. Bill in stages on anything that takes longer than a month. Advisory work, corporate finance, systems projects. A deposit on engagement and a stage payment at an agreed midpoint changes the cash profile of the whole job, and clients expect it on project work in a way they do not on compliance.
What not to do
Do not try to fix lock-up by pushing the team harder. Lock-up is a process measure, and a process measure that is attacked through effort produces short-term improvement and long-term resentment. The days come out of the design, not out of people.
Do not discount to get paid. A settlement discount to clear an old debt trains the client to wait next time, and it converts a collection problem into a pricing problem. If a debt is genuinely bad, write it off, learn what went wrong at engagement, and move on.
And do not celebrate a good month. Lock-up is seasonal in an accountancy practice, and a January reading tells you almost nothing. Compare each month against the same month last year, and watch the twelve-month trend rather than the last reading.
Do this month
- Calculate both halves properly, using VAT-inclusive fees for debtor days, and write the two definitions down so they never quietly change.
- Pull the gap between job completion date and invoice date for the last fifty jobs. That single distribution will tell you whether billing or collection is your real problem.
- Pick the one stage from the table above with the most days in it and fix only that. Firms that attack all five at once move none of them.
- Put lock-up days on the weekly numbers you already look at, next to jobs past target and the review queue — see the KPIs worth tracking for the rest of that set.
- Make it a standing item in your monthly operating review, owned by a named person, with last month’s number visible.
The reason lock-up is worth doing before almost anything else is that it pays for the rest. A firm that releases £100,000 of its own cash has funded the hire, the software migration or the management layer it has been putting off — and it has done it without borrowing, without growth, and without asking anyone to work harder.
Common questions
What is a good lock-up figure for an accountancy firm?
Better to compare against yourself than against a benchmark. Firm-to-firm comparisons are unreliable because WIP policies differ enormously — some practices carry work at full charge-out rate, others at cost, others write down as they go, and each produces a different number from the same underlying position. Measure your own lock-up monthly, compare each month against the same month last year to allow for seasonality, and set a target that is a specific number of days better than where you are now. A firm moving from 116 days to 90 has achieved something real. A firm reporting 90 days against an industry figure it cannot verify has achieved a conversation.
Should I include VAT in the debtor days calculation?
Include VAT in both sides of the ratio or neither, and be consistent about which. Your trade debtors balance includes VAT because that is what the client owes you. Your fee income does not. Dividing VAT-inclusive debtors by VAT-exclusive fees overstates the days by roughly a fifth, which is the most common error firms make on their first attempt and always in the flattering direction. The clean version is trade debtors divided by annual fees including VAT, multiplied by 365. WIP is a separate calculation and normally sits outside VAT entirely, so use fees excluding VAT there.
Is monthly direct debit worth the disruption of migrating clients?
For a recurring compliance book, almost always — but treat it as a project rather than an announcement. It removes debtor days on that portion of the fee, it smooths the firm's cash across the year instead of concentrating it after each filing season, and it removes the annual invoice as a moment when the client reconsiders the relationship. The cost is a proper communication plan, a season of transition, and accepting that a small number of clients will object. Move new clients onto it at onboarding first, so the default is set correctly, then migrate the existing book in cohorts rather than all at once.
Which should I fix first, WIP or debtors?
Whichever holds more days, and in most firms that is WIP even though debtors get all the attention. Pull the gap between job completion date and invoice date for your last fifty jobs. If the average is more than a few days, your problem is billing, not collection, and no amount of chasing will fix it because the clock has not started yet. If invoices go out promptly and still sit unpaid, the problem genuinely is collection, and the fix is an automated chasing ladder with written escalation triggers. Diagnose before you act; the two problems look identical in the headline number.
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